Las Vegas, NV-based casino operator Wynn Resorts Ltd. (WYNN) posted mixed second quarter 2014 results. Earnings beat the Zacks Consensus Estimate while revenues missed the same.
Adjusted earnings of $2.11 in the second quarter grew 40% from the year-ago quarter and comfortably beat the Zacks Consensus Estimate of $2.08 by 1.4%. The upside reflects year-over-year improvement in revenues and growth in Las Vegas market.
Adjusted earnings exclude pre-opening cost, loss on extinguishment of debt, decrease in swap fair value, property charges and other and adjustment for non-controlling interest.
Net revenue increased 6% year over year to nearly $1.41 billion driven by increase in revenues from Las Vegas operations. However, it missed the Zacks Consensus Estimate of $1.44 billion by 1.9% possibly due to a sluggish Macau market.
Adjusted earnings before interests, taxes, depreciation and amortization (EBITDA) increased 9.8% year over year to $467.4 million, driven by higher revenues, partially offset by higher operating costs and expenses. Total operating costs and expenses were up 1.2% to $1.07 billion.
The company owns and operates casino hotel resorts in Las Vegas and in Macau Special Administrative Region of the People's Republic of China.
Macau Operations
Wynn reports its Macau table games results under two categories — the VIP segment and the mass market segment.
Wynn Macau’s revenues were up 3.2% year over year to $960.6 million in the quarter, benefiting from solid business in the mass market segment. Table games win in the mass market category amounted to $311 million, up 43.3% year over year. Moreover, the mass market table games win rate was 53%, up year over year. Also, it went up 960 basis points (bps) sequentially.
Table games turnover in the VIP segment declined 11.7% from the prior-year period to $26.4 billion due to the sluggish Macau VIP market. However, VIP table games win rate (based on turnover) was 2.93%, approximately flat year over year but up 14 bps sequentially. Also, it was towards the higher end of the expected range of 2.7% to 3%.
The company’s growth in Macau was not as strong as it had been in the past few quarters. In, fact, it was lower than the growth rate in the Las Vegas region. This reflects a slowdown in gambling in Macau. The slowdown can be attributed to the fact that high-stake gamblers are curtailing spending amid a cooling Chinese economy.
Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on VIP gamblers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau. This also impacted the company’s performance in Macau.
The decline can also be attributed to the football World Cup that diverted some bettors and tourists away from the world’s largest gambling hub. As a result, gross gaming revenue in Macau for the month of June declined 3.7% to $3.4 billion – the first instance of decline since Jun 2009.
Revenue per available room (RevPAR) increased 9.7% to $329 in the second quarter, gaining from a 290 bps improvement in occupancy rate and a 6.4% rise in average daily rate (ADR).
Gross non-casino revenues came in at $100.6 million, up 0.7% year over year. In the second quarter, adjusted EBITDA margin was up 90 bps to 32%.
Wynn Resorts is engaged in developing a Wynn Palace Project on the Cotai land in Macau, which is slated to open in the first half of 2016. Currently, the company expects the project to cost around $4 billion. The company spent around $249.7 million on the Cotai project in the quarter.
Las Vegas Operations
Wynn Resorts’ revenues from Las Vegas operations increased 12.5% year over year to $451.4 million due to higher casino and room revenues. Net casino revenues increased 28% from the prior-year period to $629 million. Table games win percentage was 27.4%, up 590 bps year over year and 670 bps sequentially. Moreover, it was above the expected range of 21% to 24%.
However, room revenues were up 7.3% to $107.9 million, thanks to improved average daily rate and occupancy rate. During the quarter, RevPAR was up 7.7%, benefiting from a 150 bps increase in occupancy rate and 5.6% rise in ADR. In the second quarter, EBITDA margin was up 170 bps to 35.5%.
Our Take
It seems that growth in Las Vegas made up for the sluggish growth in Macau. Given the scenario, we expect the company to remain under pressure due to crackdown on illegal money transfers, credit growth concerns, tighter restrictions on visas and an impending smoking ban in the casinos in Macau, China.
Nevertheless, except for the VIP segment at Wynn Resorts’ Macau operations, the overall scenario was impressive. Over the long-term, we expect strong brand portfolio and solid mass market revenues to bode well for the company.
Wynn Resorts presently has a Zacks Rank #3 (Hold). Zynga, Inc. (ZNGA) is a better-ranked stock in the same sector with a Zacks Rank #2 (Buy). Another gaming stock, Churchill Downs Inc. (CHDN) will report results on Jul 30, 2014 while MGM Resorts International (MGM) is set to report second quarter results on Aug 4.
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